-- Posted 25 March, 2006 | | Source: SilverSeek.com

I had a dream last night, or rather this morning, the kind of dream you sometimes have after you wake up early and spend the next 20 minutes floating into and out of sleep. In it, I ran into my old high school teacher, who was having trouble teaching economics, so I decided to create a game for her to help her get through to her class. But it wasn't quite a board game, or if it was one it was so big (or we so small) that we were able to walk around on it like living game pieces, creating it as we talked.

The board was a cul-de-sac with seven houses, all differently built and colored. One was like an old one-room schoolhouse, one like a cartoonish haunted house with spires and bats in the finest Halloween tradition, and the largest was a Victorian-era Painted Lady mansion.  The others were of differing shapes and sizes, sprawled along both sides of a newly-paved street. Each of the houses was unique yet together they somehow represented every type of house one could imagine.

"There are six players to start the game," I explained as we walked through the clover-covered field between two houses, "and each has certain assets and certain liabilities." I pointed out that one house had some rabbits in a hutch out back, another a few hens scratching about the front yard, and one had a well and another a large saw. The haunted house, however, sat empty with no apparent assets of its own.

I told the teacher that the game was played in rounds (how I knew this I don’t recall) with the first round being the hardest for reasons that would become obvious. Each person, because of their assets and limitations, could produce certain things they needed to survive but no one could create all those things.  Even so, each would need to have in possession a defined amount of food and shelter at the end of each round to stay in the game. Since only so much could be produced, especially at first, the loss of anyone from the game, rather than increasing one's odds of winning - like in Monopoly - decreased one's chances.

Each round asked hard questions and demanded harder choices: if you are the man with the rabbits, do you eat them? Your rabbits can produce more rabbits, but only so many because you only have one acre of land on which to feed them. Your neighbor has an acre of garden - might you let some 'extra' rabbits into his garden at night? Or do you trade those rabbits for some corn? And if you do trade, do you trade dead rabbits so they'll be counted as food, or do you trade live ones which might be able to increase the overall food supply but would also increase competition? One man begins with a hole in the roof of his house; another can create lumber that might be used to fix it. But what has man A to induce man B to give up the lumber he needs?

As the first round ends, everyone must have – through trade - so much food and a shelter to protect him from the evil wind that would blow him off the board. Beg, borrow, or steal, at the end of the round you MUST have what it takes to survive into the next round. And players truly could steal, though the others could remove a stealer from the game at any time. But as if by magic, any time someone left the game, everything he had, from chickens to apple trees, left with him. All the people hoped the man with the well stayed in, for he was the only one who could provide water.

The teacher noted that her students could learn a lot from taking part in this kind of barter system.  They could learn about planning and risk and the give-and-take necessary to survive.  But she was surprised that there was no way for them to save: when all their goods were hopping around or crowing at the rising sun, one bad season could toss them from the game, as could an evil act on the part of a neighbor.  Just letting a cow into the garden could mean that no one might accumulate the necessary food, and she wondered if something might be done to help remove the instability of such a hand-to-mouth system.

So as the second round begins, something new is introduced: money. In this round, everyone left is relatively established - the apple trees are producing and the rabbits reproducing like, well, rabbits - and suddenly trade becomes much easier. The man with rabbits who needs lumber does not need to trade rabbits for apples because the lumber man needs apples and not rabbits; he can simply trade him a little money and the lumber man can buy his own apples. Of course, the money supply increases slowly...it takes excess food to build a gold mine – those miners aren’t producing any - so savings are consumed in order to produce money. But with money to spend, people find that they can expand their fields a little, which might allow for more rabbits and chickens. The second round also adds people to the existing families, so there are more people to work, yet more people must be fed.

Once the second round ends, everyone counts to ensure they have the required amount of food and sufficient shelter. Maybe they even have a little money set aside that they can use to buy food if they came up short, instead of having to beg, borrow, or steal. All through the round there have been little cards drawn, like "grass fire... your field is destroyed until the round ends," that can really hurt someone...but if they have a little money set aside, they can rebuild in the next round.

The teacher is really excited now, seeing the possibilities for turning the students on to economics. Which of them would not enjoy building a profitable rabbit farm from scratch? Who wouldn't like to run a gold mine or an orchard? 

"What about the third round?" she asks, and I can tell she’s excited to see the possibilities that all this growth and cooperation will teach her charges.

"Remember that there were seven houses?" I ask, pointing at the haunted house. "Well, that house gets an occupant in this round."

We watch as a bent little gnome of a man moves in. The man turns out to be a cantankerous old viscount with a soft heart and a handgun who makes sure there is no more stealing or putting people out of the game by other players. But there's a cost: he takes a small cut of the money that everyone earns in trade - making their trade less profitable but not painfully so - and buys some food for himself with it. He does not produce anything but does a marvelous job keeping the peace.

Everyone seems a little better off for not having to worry about stealing or being unfairly put out, and they are glad the old man moved in and they ask him to help with some more things. So the occupant of the haunted house starts to help out when some of the cards come up really bad. If someone draws a "your house burns down" card, the viscount takes up a collection (involuntary) on behalf of the man who has been harmed. He starts to give some of the food he collects to those who have less food, though most of it is simply removed from the game. No one really complains about his occasional collections because they feel bad for people whose houses were destroyed or who don't have enough to eat, and it seems quite efficient for one man to decide for them when others need help.

But toward the end of round three, something else begins to happen, or rather to be noticed. The man in the haunted house is no longer so small. All through the round he has been performing more and more services, but the more tasks he takes on, the more he grows. And as he grows he must collect more money to buy up more food, not only removing goods from the game, but making everyone noticeably poorer. They have less money and a few start to feel that the man might be more of a bother than he's worth. But others start to like him very much, choosing not to produce for themselves but instead relying on the old man's largesse. They are glad to see he's looking so large and healthy.

Now the old man doesn't like having half the people mad at him, so he comes up with an idea for something only he can produce. And the thing he can produce is money. He can produce it for free, and then he won't have to take so much money from the people who are complaining and he can still satisfy the wants of the people who love him. So he makes some of his own money and buys up the existing money, and everyone is pretty happy because they didn't like carrying heavy money anyway and didn't like having to spend capital to get it. And there seems to be more money now so they feel rich, and they all like the old man because he helps them and doesn't charge them for it. They continue to ask him for more help, and more and more people decide that they'd rather not produce at all.

At the end of round three, however, there's a problem. The old man is fat now, very fat, and is buying everything in sight with new money to feed himself. Some people start to realize that even though there is more money than ever before, there aren't more products to spend it on - the chickens don't lay any faster, the apple tree boughs are no more laden with fruit. In fact, there is actually less to spend it on, because the fat old man has been carting so much of it away.

Now comes the counting for round three. Everyone has plenty of money, but not everyone has enough food to stay in the game. Some offer to buy it from others who have enough, but they refuse...they already have plenty of money, and the money seems to buy less all the time anyway. A terrible fight breaks out as each side tries to get the old man to take their side, either to keep others from stealing or to ensure through force that they have enough food and shelter to stay in the game. Some people are put out and a lot of stealing occurs, and no one enjoys this part very much.

"What happens after round three?" the teacher asked, apparently quite troubled by the idea of her students breaking into open warfare during class.

"I don't know," I said, shaking my head. "No game has ever been played beyond round three...usually the old man gets killed by one side or the other, the haunted house falls empty again, the new money disappears, and everyone goes back to round one with a few chickens and rabbits and beans."

"What a stupid game," the teacher said, obviously disgusted with the harsh turn of events. "Why would anyone let the old man grow so much that his appetite endangered everyone like that?"

And then I woke up before I could tell her that I didn't know why anyone would do that.

We just do.

Bookman’s Picks:

Being the owner of a bookstore, I’m blessed to have a continuous stream of old economics and investment books crossing my desk.  The fact that they are old and out of date gives them two advantages over new ones: they are inexpensive (some sell online for literally a penny plus shipping) and the reader can understand which analyses have withstood the test of time. Each month I’ll bring a pair of reviews of old books that seek to answer the same questions investors are (or should be) asking today.

“Silver Profits in the 80s,” by Jerome F. Smith, 1982.

Well, you win some, you lose some.  Smith’s “Silver Profits in the 80s” was an update of his very successful “Silver Profits in the 70s,” and turned out to be as poor an investment guide as his other book was an excellent one.  And yet other than a few new chapters on non-governmental intervention into the markets, they were nearly the same book.  Both examined silver supply and demand numbers and recounted the government’s unsuccessful attempts to manipulate the market.  What was the difference?

The investor who has followed silver since the great 1980 bull market will no doubt notice the error, but for those who are new, it’s probably best to lay it out: the market itself underwent structural changes that protected it from exactly the kind of breakout Smith expected to occur in 1985.

And yet.  And yet.  The factor that Smith did not account for - a massive dishoarding on the part of governments and their central banks - can only occur once.  Smith’s Book remains a valuable study in market dynamics and might yet become proof that if you bet on the inevitable, you’ll eventually be right.

“Investor’s Guide to Penny Mining Stocks,” by Robert Bishop, 1987

On Page 155 of the “Investor’s Guide to Penny Mining Stocks,” Robert Bishop notes Jane Bryant Quinn’s sage advice that staying alive as a forecaster means following one rule: give them a number or give them a date, but never give both at the same time.

Bishop writes, “flying in the face of Mr. Quinn’s counsel, my own guess is that gold will easily exceed its 1980 record high…between now and 1990.”  Such is proof that a book does not have to be perfect to be very, very good.

Bishop’s early-chapter coverage of mining stocks, mines, and strategies remain both thorough and invaluable, though the modern investor will need to update his own strategies to account for online trading, discount brokers, and the ability to find information as fast as a Google search. 

Necessary homework aside, “The Investor’s Guide to Penny Mining Stocks” remains one of the few must-have books for the investor new to the field, because it illustrates in a single volume the rules an investor must follow in order succeed in the markets, and how the first rule is perhaps to ignore those forecasters who offer both a number and a date. 

Bill Hoyt

March 24^th, 2006

Opinions contained herein are purely those of the author, but he invites you to share them if you wish. Visit his web log, El Borak’s Myopia, for daily commentary and responses to reader email.

Last Three Articles by Bill Hoyt Price Controls 29 April, 2006 The Game 25 March, 2006 Arguing With The Radio 12 March, 2006 Bill Hoyt Article Archive List